Ichor Holdings, Ltd. Announces First Quarter 2017 Financial Results

May 11, 2017 04:30 PM Eastern Daylight Time

FREMONT, Calif.--(EON: Enhanced Online News)--Ichor Holdings, Ltd. (NASDAQ: ICHR), a leader in the design,
engineering, and manufacturing of critical fluid and gas delivery
subsystems for semiconductor capital equipment, today announced
financial results for the first quarter ended March 31, 2017 and
guidance for the second quarter of 2017.

Highlights for the first quarter of 2017 and guidance for the second
quarter of 2017 are as follows:

Revenue of $148.7 million, Ichor’s fourth consecutive record quarter

U.S. GAAP net income from continuing operations of $13.0 million and
diluted earnings per share from continuing operations attributable to
ordinary shareholders (“diluted EPS”) of $0.51

Non-GAAP adjusted net income from continuing operations of
$14.6 million and non-GAAP adjusted diluted EPS of $0.57

Second quarter revenue guidance of $152–$162 million

“Ichor delivered its fifth consecutive quarter of growth, with revenue
more than doubling over the same quarter a year ago,” said Tom Rohrs,
CEO and Chairman. “At the same time, our nearly 10% adjusted net income
percent and $0.57 adjusted diluted EPS again demonstrate our commitment
to profitability and shareholder value creation.”

Quarter Ended

Quarter Ended

March 31,2017

December30,2016

Change

March 31,2017

March 25,2016

Change

(in thousands, except per share amounts and percentages)

U.S. GAAP Financial Results:

Net sales

$

148,704

$

131,408

+ 13%

$

148,704

$

73,287

+ 103%

Gross profit percent

16.1

%

16.3

%

- 20 bps

16.1

%

16.3

%

- 20 bps

Operating margin percent

9.2

%

7.3

%

+ 190 bps

9.2

%

3.5

%

+ 570 bps

Net income from continuing operations

$

12,952

$

7,991

+ 62%

$

12,952

$

1,832

+ 607%

Diluted EPS

$

0.51

$

0.39

n/m (1)

$

0.51

$

0.03

n/m (1)

Quarter Ended

Quarter Ended

March 31,2017

December30,2016

Change

March 31,2017

March 25,2016

Change

(in thousands, except per share amounts and percentages)

Non-GAAP Financial Results:

Net sales

$

148,704

$

131,408

+ 13%

$

148,704

$

73,287

+ 103%

Gross profit percent

16.2

%

16.3

%

- 10 bps

16.2

%

16.3

%

- 10 bps

Operating margin percent

10.5

%

10.3

%

+ 20 bps

10.5

%

7.3

%

+ 320 bps

Adjusted net income from continuingoperations

$

14,567

$

11,839

+ 23%

$

14,567

$

4,545

+ 221%

Diluted EPS

$

0.57

$

0.49 (2)

+ 16%

$

0.57

$

0.19 (2)

+ 200%

(1)

Comparing first quarter 2017 diluted EPS to prior periods is not
meaningful, as during 2016 (through our December 2016 IPO), EPS was
calculated using the two-class method, required for participating
securities. See the table, Diluted Earnings per Share from
Continuing Operations Attributable to Common Shareholders, attached
to the end of this press release for a calculation of EPS under the
two-class method.

(2)

For the quarters ended December 30, 2016 and March 25, 2016, assumes
the IPO shares sold, the conversion of preferred shares into
ordinary shares, and vesting of restricted shares and options in
connection with our December 2016 IPO occurred at the beginning of
the measurement period, for comparability between current and prior
periods. No adjustment is needed to diluted shares outstanding for
the quarter ended March 31, 2017.

U.S. GAAP Financial Results Overview

For the first quarter, revenue was $148.7 million, net income from
continuing operations was $13.0 million, and diluted EPS was $0.51. This
compares to revenue of $131.4 million and $73.3 million, net income from
continuing operations of $8.0 million and $1.8 million, and diluted EPS
of $0.39 and $0.03, for the fourth and first quarters of 2016,
respectively.

Non-GAAP Financial Results Overview

For the first quarter, non-GAAP adjusted net income from continuing
operations was $14.6 million and non-GAAP adjusted diluted EPS was
$0.57. This compares to non-GAAP adjusted net income from continuing
operations of $11.8 million and $4.5 million, and non-GAAP adjusted
diluted EPS of $0.49 and $0.19, for the fourth and first quarter of
2016, respectively.

Second Quarter 2017 Financial Outlook

For the second quarter of 2017, Ichor expects revenue to be in the range
of $152 million to $162 million. We expect non-GAAP adjusted diluted EPS
to be in the range of $0.57 to $0.63.

This outlook for non-GAAP adjusted diluted EPS excludes known charges
related to amortization of intangible assets and share-based
compensation expense, but does not reflect any items that are unknown at
this time, such as any additional charges related to acquisitions or
other non-operational or unusual items, as well as other tax related
items, which we are not able to predict without unreasonable efforts due
to their inherent uncertainty.

Balance Sheet and Cash Flow Results

At March 31, 2017, Ichor had cash and restricted cash of $48.4 million,
compared to cash and restricted cash of $52.6 million at
December 30, 2016. The decrease in cash was primarily due to net cash
used by operating activities of $11.7 million, partially offset by
$7.3 million of proceeds from the exercise of the underwriters’
over-allotment option in January 2017 in connection with our
December 2016 IPO. Our operating cash outflow of $11.7 million during
the first quarter of 2017 was due to net income of $12.8 million and
non-cash charges of $2.6 million, offset by an increase in net operating
assets and liabilities of $27.1 million.

We use a 52 or 53 week fiscal year ending on the last Friday in
December. The three months ended March 31, 2017 and March 25, 2016 were
both 13 weeks. The three months ended December 30, 2016 was 14 weeks.
References to the first quarter of 2017, fourth quarter of 2016, and
first quarter of 2016 relate to the three months ended March 31, 2017,
December 30, 2016, and March 25, 2016, respectively.

Use of Non-GAAP Financial Results

In addition to U.S. GAAP results, this press release also contains
non-GAAP financial results, including non-GAAP adjusted net income from
continuing operations and non-GAAP adjusted diluted EPS. Non-GAAP
adjusted net income from continuing operations is defined as: net income
from continuing operations; excluding amortization of intangible assets,
share-based compensation expense, and other non-recurring expenses; tax
adjustments related to those non-GAAP adjustments; and the tax benefit
associated with the acquisition of Ajax. Non-GAAP adjusted diluted EPS
is defined as non-GAAP adjusted net income from continuing operations
divided by adjusted diluted ordinary shares, which assumes the IPO
shares sold, the conversion of preferred shares into ordinary shares,
and vesting of restricted shares and options in connection with the IPO
occurred at the beginning of the measurement period.

Management uses non-GAAP adjusted net income from continuing operations,
and non-GAAP adjusted diluted EPS to evaluate Ichor’s operating and
financial results. Ichor believes the presentation of non-GAAP results
is useful to investors for analyzing business trends and comparing
performance to prior periods, along with enhancing investors’ ability to
view Ichor’s results from management’s perspective. A table presenting
the reconciliation of non-GAAP results to U.S. GAAP results is included
at the end of this press release.

Conference Call

Ichor will conduct a conference call to discuss its first quarter 2017
results and business outlook on May 11, 2017 at 1:30 p.m. PT.

To listen to the conference call via the Internet, please visit the
investor relations section of Ichor’s Web site at ir.ichorsystems.com.
To listen to the conference call via telephone, please call 844-395-9251
(domestic) or 478-219-0504 (international), conference ID: 11540047.

A taped replay of the webcast will be available shortly after the call
on Ichor’s website or by calling 855-859-2056 (domestic) or 404-537-3406
(international), conference ID: 11540047.

About Ichor

Ichor is a leader in the design, engineering and manufacturing of
critical fluid delivery subsystems for semiconductor capital equipment.
Our primary offerings include gas and chemical delivery subsystems,
collectively known as fluid delivery subsystems, which are key elements
of the process tools used in the manufacturing of semiconductor devices.
Our gas delivery subsystems deliver, monitor and control precise
quantities of the specialized gases used in semiconductor manufacturing
processes such as etch and deposition. Our chemical delivery subsystems
precisely blend and dispense the reactive liquid chemistries used in
semiconductor manufacturing processes such as electroplating and
cleaning. We also manufacture certain components for internal use in
fluid delivery systems and for direct sales to our customers. This
vertically integrated portion of our business is primarily focused on
metal and plastic parts that are used in gas and chemical systems,
respectively. For more information, please visit Ichor’s website at: www.ichorsystems.com.

Safe Harbor Statement

Certain statements in this release are “forward-looking statements” made
pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Words such as “guidance,” “expects,”
“intends,” “projects,” “plans,” “believes,” “estimates,” “targets,”
“anticipates,” and similar expressions are used to identify these
forward-looking statements. Examples of forward-looking statements
include, but are not limited to, statements regarding expected revenue
and non-GAAP adjusted diluted EPS, as well as any other statement that
does not directly relate to any historical or current fact.
Forward-looking statements are based on current expectations and
assumptions, which may not prove to be accurate. These statements are
not guarantees and are subject to risks, uncertainties and changes in
circumstances that are difficult to predict. Many factors could cause
actual results to differ materially and adversely from these
forward-looking statements, including: (1) dependence on expenditures by
manufacturers and cyclical downturns in the semiconductor capital
equipment industry, (2) reliance on a very small number of original
equipment manufacturers for a significant portion of sales,
(3) negotiating leverage held by our customers, (4) competitiveness and
rapid evolution of the industries in which we participate, (5) risks
associated with weakness in the global economy and geopolitical
instability, (6) keeping pace with developments in the industries we
serve and with technological innovation generally, (7) designing,
developing and introducing new products that are accepted by original
equipment manufacturers in order to retain our existing customers and
obtain new customers, (8) managing our manufacturing and procurement
process effectively, (9) defects in our products that could damage our
reputation, decrease market acceptance and result in potentially costly
litigation, and (10) dependence on a limited number of suppliers.
Additional information concerning these and other factors can be found
in Ichor’s filings with the Securities and Exchange Commission,
including other risks, relevant factors and uncertainties identified in
the “Risk Factors” section of Ichor’s Rule 424(b)(4) prospectus filed
with the Securities and Exchange Commission on December 12, 2016. We
undertake no obligation to update publicly or revise any forward-looking
statements contained herein to reflect future events or developments,
except as required by law

Net income per share from continuing operations attributable to
ordinary shareholders:

Basic

$

0.53

$

0.42

$

0.11

Diluted

$

0.51

$

0.39

$

0.03

Net income per share attributable to ordinary shareholders:

Basic

$

0.52

$

0.41

$

—

Diluted

$

0.50

$

0.38

$

—

Shares used to compute net income from continuing operations per
share attributable to ordinary shareholders:

Basic

24,654,415

5,452,088

65,673

Diluted

25,640,089

5,870,331

249,889

Shares used to compute net income per share attributable to ordinary
shareholders:

Basic

24,654,415

5,452,088

65,673

Diluted

25,640,089

5,870,331

65,673

ICHOR HOLDINGS, LTD.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

Three Months Ended

March 31,2017

March 25,2016

Cash flows from operating activities:

Net income

$

12,840

$

107

Adjustments to reconcile net income to net cash used in operating
activities:

Depreciation and amortization

2,485

2,142

Gain on sale of investments and settlement of note receivable

(241

)

—

Share-based compensation

344

417

Deferred income taxes

(75

)

(68

)

Amortization of debt issuance costs

132

132

Changes in operating assets and liabilities, net of assets acquired:

Accounts receivable, net

(22,661

)

(6,861

)

Inventories

(20,063

)

(15,998

)

Prepaid expenses and other assets

(1,505

)

(962

)

Accounts payable

17,904

10,162

Accrued liabilities

(2,202

)

860

Other liabilities

1,365

4,346

Net cash used in operating activities

(11,677

)

(5,723

)

Cash flows from investing activities:

Capital expenditures

(2,274

)

(282

)

Proceeds from sale of intangible assets

—

230

Proceeds from sale of investments and settlement note receivable

2,430

—

Net cash provided by (used in) investing activities

156

(52

)

Cash flows from financing activities:

Issuance of ordinary shares, net of fees

7,277

—

Borrowings under revolving commitment

—

3,000

Repayments on long-term debt

—

(1,138

)

Net cash provided by financing activities

7,277

1,862

Net decrease in cash

(4,244

)

(3,913

)

Cash and restricted cash at beginning of year

52,648

24,188

Cash and restricted cash at end of period

$

48,404

$

20,275

Supplemental disclosures of cash flow information:

Cash paid during the period for interest

$

1,409

$

780

Cash paid during the period for taxes

$

14

$

48

Supplemental disclosures of non-cash activities:

Capital expenditures included in accounts payable

$

1,585

$

124

ICHOR HOLDINGS, LTD.

Reconciliation of U.S. GAAP Net Income from Continuing Operations
to Non-GAAP Adjusted Net

Income from Continuing Operations

(in thousands, except share and per share data)

(unaudited)

Three Months Ended

March 31,2017

December 30,2016

March 25,2016

(in thousands, except share and per share amounts)

Net income from continuing operations

$

12,952

$

7,991

$

1,832

Non-GAAP adjustments:

Amortization of intangible assets

1,795

1,805

1,603

Share-based compensation (1)

344

1,872

417

Other non-recurring (income) expenses

(500

)

235

713

Tax adjustments related to non-GAAP adjustments

(24

)

(64

)

(20

)

Tax benefit related to Ajax acquisition

—

—

—

Non-GAAP adjusted net income from continuing operations

$

14,567

$

11,839

$

4,545

Non-GAAP adjusted diluted EPS (2)

$

0.57

$

0.49

$

0.19

Shares used to compute diluted EPS (3)

25,640,089

24,172,826

24,002,128

(1)

Of the total share-based compensation expense non-GAAP adjustment,
$8, $8, and $5 is included in cost of sales for the quarters ended
March 31, 2017, December 30, 2016, and March 25, 2016, respectively,
and $336, $1,864, and $412 is included in operating expenses for the
quarters ended March 31, 2017, December 30, 2016, and March 25,
2016, respectively.

For the quarters ended December 30, 2016 and March 25, 2016, assumes
the IPO shares sold, the conversion of preferred shares into
ordinary shares, and vesting of restricted shares and options in
connection with our December 2016 IPO occurred at the beginning of
the measurement period, for comparability between current and prior
periods. No adjustment is needed to diluted shares outstanding for
the quarter ended March 31, 2017.

ICHOR HOLDINGS, LTD.

U.S. GAAP and Non-GAAP Summary Consolidated Statements of
Operations

(in thousands)

(unaudited)

Quarter Ended

Quarter Ended

Quarter Ended

March 31, 2017

December 30, 2016

March 25, 2016

U.S.GAAP

Non-GAAP

U.S.GAAP

Non-GAAP

U.S.GAAP

Non-GAAP

Net sales

$

148,704

$

148,704

$

131,408

$

131,408

$

73,287

$

73,287

Cost of sales (1)

124,689

124,681

110,003

109,995

61,362

61,357

Gross profit

24,015

24,023

21,405

21,413

11,925

11,930

Operating expenses (1)

10,397

8,462

11,756

7,852

9,342

6,614

Operating income

13,618

15,561

9,649

13,561

2,583

5,316

Interest expense

690

690

1,125

1,125

902

902

Other income, net

(549

)

(245

)

(245

)

(245

)

(387

)

(387

)

Income from continuing operations before income taxes

13,477

15,116

8,769

12,681

2,068

4,801

Income tax expense from continuing operations

525

549

778

842

236

256

Net income from continuing operations

$

12,952

$

14,567

$

7,991

$

11,839

$

1,832

$

4,545

(1)

Of the total share-based compensation expense non-GAAP adjustment,
$8, $8, and $5 is included in cost of sales for the quarters ended
March 31, 2017, December 30, 2016, and March 25, 2016, respectively,
and $336, $1,864, and $412 is included in operating expenses for the
quarters ended March 31, 2017, December 30, 2016, and March 25,
2016, respectively.

The following table calculates diluted EPS from continuing operations
attributable to ordinary shareholders using the two class method,
required for participating securities, as Ichor had two classes of stock
during 2016 and 2015. Beginning in the first quarter of 2017, Ichor no
longer uses the two class method, as there is only one class of stock
outstanding subsequent to our December IPO. All preferred shares were
converted into ordinary shares in connection with our December IPO.

ICHOR HOLDINGS, LTD.

Diluted Earnings per Share from Continuing Operations
Attributable to Common Shareholders

(in thousands, except share and per share data)

(unaudited)

Three Months Ended

March 31,2017

December 30,2016

March 25,2016

Net income from continuing operations

$

12,952

$

7,991

$

1,832

Undistributed earnings attributed to preferred shareholders

—

(5,721

)

(1,825

)

Net income from continuing operations, attributable to ordinary
shareholders (1)

$

12,952

$

2,270

$

7

Net income per diluted share from continuing operations attributable
to ordinary shareholders

$

0.51

$

0.39

$

0.03

Diluted shares used to compute net income from continuing operations
per share attributable to ordinary shareholders

25,640,089

5,870,331

249,889

(1)

Under the two-class method, net income attributable to ordinary
shareholders after deduction of preferred share dividends, if any,
is determined by allocating undistributed earnings between the
ordinary shares and the participating securities based on their
respective rights to receive dividends. Basic net income per share
attributable to ordinary shareholders is computed by dividing net
income attributable to ordinary shareholders by the
weighted-average number of ordinary shares outstanding during the
period. All participating securities are excluded from basic
weighted-average ordinary shares outstanding. Diluted net income
per share attributable to ordinary shareholders is computed by
dividing net income attributable to ordinary shareholders by the
weighted average number of ordinary shares outstanding, including
all potentially dilutive ordinary shares, if the effect of each
class of potential shares of ordinary shares is dilutive.

For purposes of calculating EPS under the two-class method, an
accounting policy election has been made to treat each income statement
line item (net income from continuing operations, net income from
discontinued operations, and net income) as an independent calculation
and only allocate earnings to participating securities for those line
items for which income is reported, as the participating securities do
not have a contractual obligation to participate in losses. There is
therefore no allocation of losses to participating securities for those
line items for which a loss is reported. Under this method, the sum of
the individual EPS income statement line items will not reconcile to the
total net income per share.